Budget: ‘Higher spending will require higher taxes,’ new chancellor warned

A study suggests it would be fiscally responsible for the chancellor to raise more in taxes to help offset big spending increases.

The new chancellor will have to raise taxes if the government’s plan to “level up” the country is to be financially responsible, according to a study.

The report, by the Resolution Foundation think tank, found Rishi Sunak’s budget on 11 March had the potential to take the government’s total managed expenditure above £1tn a year for the first time by 2023-24 after a decade of austerity.

It said that £100bn of extra capital spending – for major infrastructure projects and to boost regions outside of London and the South East – would likely see borrowing rise from £41bn in 2018-19 to £64bn by 2021-22 in a shift from the current so-called fiscal rules.

The study added that higher spending – not something usually associated with a Tory government – should be accompanied by “fiscally responsible” tax rises.

It suggested a number of possibilities such as maintaining current income tax thresholds – to raise up to £8bn – or scrapping Entrepreneurs’ Relief and saving £3bn in the process.

However, the report noted that a hit to tax bills from weaker growth forecasts was likely to be more than offset by lower interest rates and inflation reducing the cost of government debt.

The Conservatives have signalled that the budget will be used to kick-start the government’s post-Brexit growth plans – rewarding voters who backed Boris Johnson in December’s election.

Written by BayRadio